Citigroup made a surprising call in the networking sector Friday, downgrading Cisco ( CSCO) and upgrading rival Juniper ( JNPR).
Citi cut Cisco to hold from buy and boosted Juniper to buy from hold, saying Sunnyvale, Calif.-based Juniper appears to have the easier track to improvement this year. Citi said Cisco appears to have wrung as much margin expansion as it can out of recent acquisitions and cost cuts, while Juniper appears poised to regain the form it lost last year in a scandal-plagued 2006. The news comes after a topsy-turvy year in the communications gear stocks. Shares of both companies were out of favor with Wall Street until last summer, when Cisco chief John Chambers suddenly ratcheted up the company's growth expectations on the back of the acquisition of cable set-top box maker Scientific-Atlanta. The stock, long stuck in the midteens, surged more than 60% before cresting earlier this year at $29. Meanwhile, Juniper, which has been hit by competitive worries and pulled down in the morass of the stock option backdating investigation, has come along for the ride. Unlike San Jose, Calif.-based Cisco, the company hasn't reported full quarterly results since the middle of last year, owing to an ongoing restatement of its option accounting. But shares are up sharply nonetheless as investors bet that the company will recover the momentum that once had it making significant inroads on Cisco's control of the market for the big routers that sort Internet traffic. Both shares are now well off their highs, Cisco down 10% from its peak this month at $26.22 and Juniper off last November's top at $18.46.